QUESTION:
Hi David,
I'm a U.S. citizen that became a permanent resident in Canada in Feb. 2003.
I continued to work in the U.S. until Oct. 2004. Since then, I've been
working in Canada. I am getting hung up on line 3 of form 2555-EZ because
the instructions say "your tax home must be in a foreign country throughout
your period of bona fide residence." It goes on to say "your tax home is
your regular or principal place of employment, regardless of where you
maintain your residence." So am I to understand that I can't use form
2555-EZ because my "tax home" was only in Canada for 3 months?...and if this
is true, does this mean that I simply add the U.S. equivalent of my Canadian
earnings to my U.S. earnings when I file my 1040? Thanks for your help!
======================================
david ingram replies:
1. For 2003, you would have filed a 1040 reporting your US income and paid
the same federal tax that you would pay if you lived in Anchorage, Seattle,
Las Vegas, Miami or any other city in a state with no state return. (if you
were in a state with a state tax return, the state tax becomes part of
itemized deductions and would affect the federal tax if high enough to make
itemizing deductions reasonable.
2. For 2003, you would file an "arriving" Canadian tax return and report all
your US earnings on lines 104 and 433 of the T1 General. You would then add
up the Federal, state, FICA and Medicare taxes you had paid and put that
figure on line 431 of the T1 General Canadian Tax return. You would also
have converted the US figures to Canadian dollars first.
3. For 2004, you will file a US tax return as in 2003 and report all your US
AND Canadian Income on that return. Because you have lived in Canada for a
full calendar year, you are eligible to file form 2555. I have never used a
2555EZ. Use a full 2555. The Canadian earnings (converted to US dollars)
goes on page 2 as your earnings. Page one is pretty obvious and Part I asks
for the days you were in the US and how much you earned in the US. Do NOT
worry about filling all the ins and outs out. It is not logical if you
commuted. However, DO give them the number of days and make a "commuted"
comment where it asks for the dates in and the dates out.
The 2555 form allows you to exempt up to $80,000 US of earned income if you
were out of the United States for 330 out of 365 days of a fiscal year or
the same exemption if you had and lived in a bone fide residence in another
country for an entire calendar year.
It is actually pro-rated for the number of days you worked in the foreign
country.
To make an easy calculation, if you worked in Canada 92 days (31 in Oct, 30
in Nov, 31 in Dec) and in the US for the other 274 days (2004 was a leap
year with 366 days), you would have an exemption amount of (92/366 x's
$80,000) $20,109.29.
If you earned less than $20,109.29 US in Canada, then the whole amount would
be an exemption on the form 2555 page 3 and you would not pay any tax to the
US on that amount.
If you earned more than $20,109.29 US (26,172.63 Canadian), than you would
have to exclude the $20,109.29 on the form 2555 and the balance would be
looked after by filing a form 1116 and claiming a foreign tax credit.
Good luck. It is a difficult set of circumstances to deal with and few
consultants really know how to handle your situation.
If you decide you need help, we do look after US and Canadian tax returns
from all over the world by fax, email, mail and courier. The address is
below.
Normally, I would say that you could phone me on the program I mention below
but I will not be on tomorrow's Sunday show. I will be back on Feb 20th
however.
Answers to this and other similar questions can be obtained free on Air
every Sunday morning.
Every Sunday at 9:00 AM on 600AM in Vancouver, Fred Snyder of Dundee Wealth
Management and I, David Ingram host a LIVE talk show called "ITS YOUR
MONEY"
Those outside of the Lower Mainland will be able to listen on the internet
at
www.600AM.com <http://www.600am.com/>
Local calls are taken at (604) 280-0600 and Long Distance calls are taken at
1( 866) 778-0600
Callers to the show are invited to attend free seminars on financial
planning with such specialities as deductible mortgage interest. They are
held at Fred Snyder's Office at 1764 West 7th in Vancouver - (604) 731-8900
for more information.
=========================================
David Ingram's US/Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
4466 Prospect Road
North Vancouver, BC, CANADA, V7N 3L7
Res (604) 980-3578 Cell (604) 657-8451
(604) 980-0321 Fax (604) 980-0325
Email to taxman at centa.com <mailto:taxman at centa.com>
www.centa.com <http://www.centa.com> www.david-ingram.com
<http://www.david-ingram.com/>
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